Editorial: Collective defined contribution is getting another close look. And it probably will do until pure DC can prove it allows people to have a decent retirement.
The Work and Pensions Committee has launched an inquiry into CDC, which has taken many by surprise.
Chairman Frank Field said the aim of the inquiry is to see if savers could “club together and pool the risk themselves” to provide them with something more than pure DC, but without having to rely on an employer to honour a promise.
Meanwhile, to highlight new data on life expectancy, the Office for National Statistics sent out an email on Friday with the subject line ‘What is my life expectancy? And how might it change?’ Of course, it offered an answer through a calculator.
But knowing your actual life expectancy would sadly probably include a decision to end your own life.
Otherwise ‘ultima latet’ applies – the last (hour) is hidden (from us) – as sundials remind us.
This inevitable truth means that in a pure DC system, we almost certainly over or under-save for our own retirement. We are told to hit a target no one can see.
There are different ways to collectivise DC schemes, as some European countries show. But here, too, debate continues over intergenerational fairness and sustainability.
However, while risk pooling remains hotly debated in the UK, consensus exists over asset pooling. The first private sector employer has just merged its pension assets within the Local Government Pension Scheme.
And although the focus is often more on governance, mastertrusts also offer a form of asset pooling to employers.
Our exclusive case study on the Merchant Navy Officers Pension Fund illustrates some major trends among schemes – derisking on the defined benefit side and pooling in both DB and DC. It will be interesting to see if a UK government will one day go further and introduce risk pooling in DC.
Sandra Wolf is editor at Pensions Expert. You can follow her on Twitter @SandraCWKand the team @pensions_expert.
